Nestlé's Future May See Less Reliance on Packaged Foods
June 28 2017 - 2:28PM
Dow Jones News
By Brian Blackstone
ZURICH -- The world's biggest packaged-food company may be
cutting back on packaged food.
Nestlé SA outlined a far-reaching strategic shift this week,
days after activist investor Daniel Loeb, who has accumulated a
1.25% stake, asked for big changes. Nestlé promised new investment
in its high-growth business like bottled water, coffee, infant
nutrition and pet care. It also signaled it would consider consumer
health-care acquisitions.
What Nestlé didn't mention in its new strategy: "prepared" food,
a core Nestlé sector that includes household names like Lean
Cuisine, DiGiorno pizza and Herta processed meats, a brand popular
in Europe. That, coupled with a number of high-profile food sales
in recent months, has analysts and investors expecting more
divestitures, though it may take awhile.
Earlier this month, Nestlé's new Chief Executive Mark Schneider
put on the block its U.S. confectionery business, which includes
the Butterfinger, Baby Ruth and Crunch candy bars. Last month,
Nestlé agreed to sell three of its frozen food brands in Italy.
A Nestlé spokewoman decline to comment on its prepared foods
business.
"It's a small revolution that's taking place," said
Jean-Philippe Bertschy, analyst at Vontobel Research. "Nestlé's
frozen foods, ice cream and pizza businesses are areas for possible
disposals" over the next three to four years, he said. Jon Cox,
head of Swiss equities at Kepler Cheuvreux, said he expects
additional disposals in confectionery, frozen foods and cereals in
the coming years.
Nestlé hasn't signaled any specific new divestitures. On
Tuesday, it said only that it "will continue to adjust its
portfolio in line with its strategy and growth objectives."
Few analysts expect a full buffet of food-brand sales from
Nestlé. The company has been investing heavily in some of its
brands, including ice cream and Lean Cuisine, which it says it has
successfully turned around in recent years.
But the company said it is targeting acquisitions and investment
at faster-growing segments far from its traditional base in
prepared food. The cheap, ready-to-eat brands were staples of
supermarket shelves for decades but have recently fallen out of
favor amid competition from healthier options.
Nestlé Chairman Paul Bulcke has said Nestlé, like other
consumer-goods companies, has been slow to respond to rapidly
changing consumer tastes. In an interview late last year, when he
was still chief executive, he cited its reliance on the word
'lean,' which is on all of its packages of Lean Cuisine meals.
"'Lean,' that was so in: diet; lean. All these arguments all of
a sudden were not valid anymore because 'lean' is linked with
sacrifice," he said. Not having seen this change coming "is
somewhat a frustration, but then we reacted then pretty fast when
we saw it."
Nestlé breaks out its products in broad categories. Its prepared
food and cooking aid business brought in 12.15 billion Swiss francs
($12.6 billion) in sales last year, or about 13.6% of overall
sales. But sales have lagged behind in other segments, delivering
just 2.7% growth, excluding things like acquisitions and
divestitures. Organic sales at Nestlé grew as a whole 3.2% last
year.
Still, the businesses are among the company's biggest revenue
generator. Adding in various slower-growing brands in some of its
other food-oriented units -- those units include confectionary,
milk products and ice cream and powdered and liquid beverages --
these businesses make up a big chunk of Nestlé sales, particularly
in the U.S. "It may not tick many attractiveness boxes, bottom up,"
said Martin Deboo, consumer goods analyst at Jefferies
International. "But, top down, it represents 20-25% of sales in
their biggest market [in the U.S.] and is making a significant
contribution to both central overheads and overall clout with the
likes of Wal-Mart," said Mr. Deboo.
The packaged food business is also a bit of a buyer's market
recently. Unilever PLC put its spreads business, including
margarine but not mayonnaise, up for sale earlier this year.
Reckitt Benckiser Group PLC is selling its French's mustard.
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
June 28, 2017 14:13 ET (18:13 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Nestle (PK) (USOTC:NSRGY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Nestle (PK) (USOTC:NSRGY)
Historical Stock Chart
From Apr 2023 to Apr 2024